BILL ANALYSIS �
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THIRD READING
Bill No: SB 538
Author: Hill (D)
Amended: 4/1/13
Vote: 21
SENATE BANKING & FINANCIAL INSTITUTIONS COMM. : 8-0, 4/3/13
AYES: Berryhill, Beall, Calderon, Corbett, Correa, Hill, Hueso,
Roth
NO VOTE RECORDED: Walters
SENATE APPROPRIATIONS COMMITTEE : 5-1, 4/15/13
AYES: De Le�n, Hill, Lara, Padilla, Steinberg
NOES: Gaines
NO VOTE RECORDED: Walters
SUBJECT : Securities: Corporate Securities Law of 1968
SOURCE : Author
DIGEST : This bill enacts several changes to the Corporate
Securities Law of 1968 to augment the securities law enforcement
resources of the Department of Corporations (DOC) and
streamlines the process by which DOC may collect judgments from
securities licensees found to have violated the securities laws;
authorizes the DOC to charge a renewal fee of up to $35 to
licensed broker-dealer agents and investment adviser
representatives; and makes a variety of technical changes to
other laws administered by DOC.
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ANALYSIS :
Existing law:
1. Provides for the Corporate Securities Law of 1968,
administered by DOC, to govern the issuance and sale of
securities in California.
2. Provides for the Commodities Law of 1990 which governs the
sale or purchase, or offer to sell or purchase any commodity
under any commodity contract or commodity option, by persons
not otherwise regulated as commodities traders under federal
law, or not otherwise exempt from regulation in that capacity
under state or federal law.
This bill:
1. Authorizes DOC to impose annual renewal fees of up to $35 on
licensed broker-dealer agents and investment adviser
representatives, and states legislative intent that the
revenue generated from the imposition of these fees be used
by DOC to perform regulatory examinations of its
broker-dealer and investment adviser licensees at least once
every four years, or more often, if deemed necessary for the
protection of the public.
2. Authorizes the DOC Commissioner to apply to an appropriate
superior court for a judgment in the amount of an
administrative penalty granted pursuant to a final decision
of the Commissioner, and, if applicable, pursuant to a final
decision of the Commissioner on a claim for ancillary relief
such as restitution or disgorgement. Requires any such
application by the Commissioner to a superior court to
include a certified copy of the Commissioner's final
decision, and provides that any such application shall
constitute a sufficient showing to warrant the issuance of a
judgment and order by that superior court.
3. Expands the types of securities law violations for which DOC
is authorized to issue desist and refrain (D&R) orders, by
authorizing the issuance of D&Rs for any violation of the
Corporate Securities Law of 1968 or any rule adopted or order
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issued pursuant to that Division.
4. Updates the anti-fraud language in California's securities
law to ensure consistency with federal anti-fraud language,
by providing that it is unlawful for any person, in
connection with the offer, sale, or purchase of a security,
directly or indirectly, to employ a device, scheme, or
artifice to defraud; make an untrue statement of material
fact or fail to state a material fact necessary to make the
statements made, in light of the circumstances under which
they were made, not misleading; or engage in an act,
practice, or course of business that operates or would
operate as a fraud or deceit upon another person.
5. Exempts California limited partnerships and limited liability
companies that apply to DOC for qualification for the sale of
securities or that file requests for or notices of exemption
from qualification for the sale of securities with DOC from
the requirement to file consents to service of process with
DOC.
6. Amends the Commodities Law (administered by DOC) to provide
that a request for hearing to dispute the issuance of a D&R
must be made within 30 days of service of the order, rather
than within one year of service of the order, and provides
that if a person who is served with a D&R fails to file a
written request for a hearing within 30 days from the date
that D&R is served, the D&R shall be deemed final.
7. Corrects code section references and makes other minor
technical changes.
Comments
According to the author, "Broker-dealers, investment advisers,
and their employees perform critically important functions on
behalf of Californians, over which the state should provide an
appropriate level of oversight. Particularly in today's
extremely low interest rate environment, people are very
susceptible to aggressive sales pitches on risky investment
products that promise high rates of investment return.
Investment advisers have a fiduciary duty to their clients, and
broker-dealers are required to ensure that the investments they
recommend to their customers are suitable for those customers.
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Neither type of professional should be pitching risky investment
products to people for whom these products are inappropriate.
Yet, at the present time, DOC lacks the resources necessary to
ensure that the state's investment professionals are following
the law, and adhering to their duties to investors. The
incremental cost to provide DOC with the examiners it needs to
conduct regular regulatory examinations of its securities
licensees is miniscule - in the range of $25 to $30 annually.
We owe it to California investors to do what we can to protect
them in their dealings with those from whom they seek advice
related to their investments."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee, approximately
$7.8 million - $9.8 million in new revenue to the DOC (Special).
The revenue estimate is based on the DOC charging a renewal fee
ranging from $28-$35 for agents and investment adviser
representatives, and is based on an assumption that between 15%
and 20% of the existing licensees will choose not to renew.
MW:d 4/17/13 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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